Russian Oil Major Becomes International

Last week, Mikhail Khodorkovsky, the head of Yukos, announced that his company will become the first Russian company which will be transformed into a truly international major. All of Yuko?s activities are now being directed towards this goal. What the production is concerned, Yukos, after having completed the merger with Sibneft, is already among global oil multinationals. It will pump 2.2 million barrel per day, which is only short behind Exxon Mobil with 2.5 million barrels per day and Royal Dutch/Shell with 2.4 million barrels per day.

However, it is likely that Yukos has further growth plans in the near future. As part of its international ambitions, the company is looking for possibilities to acquire assets in the Baltic shelf and in the North Sea. It will also start producing at its Fyodorovkoye field in Kazakhstan in 2004. For Yukos these are the first steps abroad and should help the company to learn how the handle various managerial, corporate, financial and ecological challenges abroad.

Yukos? opportunities for takeovers inside Russia are limited and could soon meet resistance of the antimonopoly regulators after the merger with Sibneft. Therefore, the company is discussing assets swaps with international firms that are looking to participate in projects inside Russia and are interested to take on Russian partners elsewhere in the world.

Another step would be a merger or a purchase of a competitor. If Yukos would merge with a company of similar size, it would create a giant which would be able to control over 5 percent of global crude production.

It can be expected that this transformation will be completed already until 2007, as Mikhail Khodorkovsky intends to step back that year. According to recent rumours, the goal could be achieved much earlier. Currently, analysts hotly discuss the probability that Exxon Mobile would purchase a stake between 25 percent to 40 percent of the newly merged YukosSibneft and pay up to $25 billion. Yesterday, Exxon CEO Lee Raymond and Mikhail Khodorkovsky were spotted together at the World Economic Forum in Moscow which could have been an appropriate venue for such an announcement. Until now, neither side has made any statement concerning the rumours.

However, there are still the uncertainties connected to the struggle between the Russian government and Khodorkovsky. There is a hard-line Kremlin fraction, which mainly consist of former members of security agencies who are very likely to oppose any deal where stakes of Russian oil companies are sold abroad. Such a move could provide YukosSibneft with shareholder protection against further political attacks and against questions concerning the privatization process in the 1990s. Also opponents of the deal are the state-owned Gazprom and Rosneft, which are afraid of domestic competition from the new heavy-weight.

At the same time as Mikhail Khodorkovsky was speaking at the World Economic Forum, 50 armed investigators initiated a new attack on Yukos by searching the office of Vladimir Dubov, a key shareholder of Yukos and member of the Russian parliament. The home of Platon Lebedev, who has been in jail since July, was also scrutinized. The time of the raid was no coincidence, it is likely that the Kremlin fraction wanted to send a sign to Yukos that it is not prepared to give up and trying to regain the initiative. To investors it is a clear hint that any deal with a foreign oil major would not be appreciated.

However, it could be unwise to exert too much power on Yukos as the company could decide that an international oil major would also need a headquarters in one of the world?s business capitals. But it is unlikely that this will happen before 2007 as Khodorkovsky has shown no sign that he is willing to leave Russia.







Author: Tatyana Zaharova